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When Japan's asset bubble burst, the office vacancy rate soared sharply. This study seeks to target the office market in Tokyo's 23 special wards during Japan's bubble burst period. It aims to define economic conditions for the redevelopment/conversion of offices into housing and estimate the redevelopment/conversion probability under the conditions.

The precondition for land‐use conversion is that subsequent profit excluding destruction and reconstruction costs is estimated to increase from the present level for existing buildings. Regarding hedonic functions for offices and housing and computed profit gaps for approximately 40,000 buildings used for offices in 1991, it was projected how the profit gaps would influence the land‐use conversion probability. Specifically, panel data for two time points in the 1990s were used to examine the significance of redevelopment/conversion conditions.

It was found that, if random effects are used to control for individual characteristics of buildings, the redevelopment probability rises significantly when profit from land after redevelopment is expected to exceed that from present land uses. This increase is larger in the central part of a city.

Limitations stem from the nature of Japanese data limited to the conversion of offices into housing. In the future, a model may be developed to generalize land‐use conversion conditions.

This is the first study to specify the process of land‐use adjustments that emerged during the bubble burst. This is also the first empirical study using panel data to analyze conditions for redevelopment.